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PG&E shares plunge on bankruptcy worries

Jan. 7, 2019– Mary Greeley News – (Reuters) – Chalk it up to years of corporate disconnection from reality, but Pacific Gas & Electric (PG&E) is reportedly now facing bankruptcy after being suspected a culprit of the last devastating Californian wildfires.

The utility is not only facing severe criticism over its recurring lack of security prevention in recent years, but also gigantic lawsuits. State regulators are investigating if the company’s equipment sparked November’s Camp Fire.

PG&E Corp’s (PCG.N) shares plunged more than 18 percent on Monday after sources said the California utility is exploring filing for bankruptcy protection as it fears a massive charge in the fourth quarter related to potential liabilities from wildfires.

PG&E is now reportedly scrambling facing the consequences of the incoming wave of liability due to its potential role in California’s deadliest and most destructive fires in history. According to NPR, its parent company is looking into selling some of its major assets in order to avoid bankruptcy and pay the incoming tsunami of lawsuits. The lawsuits could exceed the market value and insurance coverage of the Californian utility.

PG&E started a program called “Project Falcon” in 2017 to deal with its potential role in previous fires in the state. But in order to face the costly lawsuits from the last fire devastations, the company is looking into selling its natural gas division as early as spring 2019. The avoidable consequences are catching up after years of deadly errors and safety violations the company has skirted. NPR quotes a senior company official and a former employee about the Project Falcon strategy. Both remain anonymous.

PG&E did not respond to a request for comment.

The company could take billions of dollars of liabilities from fatal blazes in 2018 and 2017, with analysts covering the stock estimating it to be between $24 billion to $30 billion.

A bankruptcy filing is not certain, sources had told Reuters, adding that the company could receive financial help through legislation that would let it pass on to customers costs associated with fire liabilities.

But that is just a possibility, they said.

“Without adequate political and regulatory support, we cannot rule out a Chapter 11 filing,” Christopher Turnure analyst at J.P. Morgan said in a note.

However, Guggenheim Partners analyst Shahriar Pourreza said bankruptcy will not be the best option as PG&E is too big an utility in California.

“Legislation is the way forward as it will allow to keep the utility alive and mitigate any negative impact one can get from the bankruptcy,” Pourreza said.

The utility said on Friday it is also looking for new directors for its holding company and its unit Pacific Gas and Electric Co.

According to these sources, PG&E faces billions of dollars in potential claims from the last wildfires. It is reviewing structural options to meet customer and operational needs. In its defense, PG&E said it is looking for new directors for its board in order to raise its expertise in safety. But is it too little, too late? And what about the accountability of previous officers and responsible management?

Shares of the company were trading down at $20 in premarket trading, its lowest since mid-November.

PG&E is a private company offering energy in much of California. It was already blamed for least a dozen major fires across Northern California in 2017, according to CAL FIRE. We’ve already seen cases of major companies bailed out with taxpayer money a decade ago and PG&E could be the next one. Unfortunately, PG&E isn’t very clear on how it plans to deal with future safety and fire prevention. So far, it installed bulletproof glass at its headquarters, hardly a reassuring sign that it is taking the matter seriously.

Insurance companies have already filed lawsuits against the utility. To make matters worse, the state regulatory agency could slow PG&E’s sale strategy. It has expressed deep concerns about the utility’s “shoddy safety record, lack of transparency and past efforts to pass liability costs on to the state’s ratepayers.” It is also looking into making it a public utility.